Tuesday 08 February, 2011

Ottoman Fund (The )

Final Results

The Company is pleased to announce as follows its final results for the year ended 31 August 2010, a full copy of which is also available on the Company's website: www.theottomanfund.com.

Chairman's Statement

Dear Shareholders:

Our net asset value per share as at 31 August 2010 was 81.6 pence as compared with 83.2 pence as at 28 February 2010. Because we are internally managed our running costs are low, though the Company has had unusual expenses this year in connection with improving and marketing Alanya.

Two appraisers value our assets: Savills and TSKB. We use the Savills valuation for the disclosure in our financial statements and the TSKB valuation as a check on the Savills one. Historically both companies have tended to reach fairly similar conclusions.

Savills

31 August 2010

($)

TSKB

31 August 2010

($)

Average

31 August 2010

($)

Average

28 February 2010

($)

Riva

100,800,000

104,867,000

102,833,500

103,410,662

Bodrum

32,626,742

40,294,000

36,460,371

35,965,611

Kazikli

8,663,415

10,058,000

9,360,708

9,272,900

Alanya

10,852,413

10,194,515

10,523,464

12,019,709

TOTAL

152,942,570

165,413,515

159,178,043

160,668,882

These valuation figures must be taken with a strong caveat. Three of the Company's assets (Riva, Bodrum and Kazikli) are sui generis. Each is unique because of its size and location. So the most robust valuation methodology - completed sales of comparable assets - is only of limited applicability to these valuation figures. Nonetheless, in consultation with our advisor, we use these numbers in determining our target for sales prices. Bids substantially at variance with these figures are unlikely to be successful, at least in the current economic environment.

These financial statements reflect about eight months of the Company's new structure - internalization of management at the Board level with an external advisor, Civitas Property Partners S.A., on the ground in Turkey. Perhaps that is an insufficient period to measure progress, but we are not satisfied with our results over the last year, whether measured on a fiscal or calendar year basis. Our objective, as we have announced previously, is to sell assets and return capital to our shareholders. We have not had any major asset sales over the last year, though we have received several bids.

In connection with Riva, our most valuable asset, we obtained 1/1000 zoning and following financial year end have paid the municipality £2,309,684 for the final permit prerequisite to building. Although it is quite unlikely that we will be involved in the development of Riva, it is our expectation that the final zoning permission should increase Riva's value. Riva as a whole comprises 16 million square meters of developable land. About 3.9 million square meters of that land has been zoned and of the zoned portion we own 935,000 square meters. Ours is by far the largest piece of zoned land in Riva. There are many reasons why Riva should eventually be successful including that it is the largest plot of undeveloped land within commuting distance to Istanbul. But Riva is a large project that requires substantial resources.

We have received approaches from prospective buyers interested either in an outright purchase or a revenue sharing agreement. But we have yet to be offered a price or arrangement that we find acceptable.

There have also been developments in connection with Bodrum and Kazikli. Though as of the date of this letter neither has proceeded to contract.

Our biggest disappointment has been in the marketing of the Alanya units. While Alanya represents less than ten per cent of our assets, it has been the most problematic asset. When the Company was floated its first investment was in 107 units in a holiday development in Alanya (the Company bought half while the developer retained and sold the remainder). The initial targets were UK and Irish investors looking for holiday homes on the Mediterranean. The Company's initial marketing efforts were slow. Although the developer, who owned half the development, sold his entire stake, we sold only a few.

Since becoming Company Chairman I have made several trips to Alanya. I was initially quite disappointed with what I saw. The properties had not been properly maintained and there were construction issues. Our advisor has taken the lead in forcing the remediation of defects and ensuring proper upkeep. I am satisfied that it is now one of the more attractive properties in Alanya and seems to offer value commensurate with price. But following the financial dislocation of the last few years there no longer is a market for these types of assets in the UK or Ireland. The target market is now Russia. Over the last year our advisor has participated in a number of exhibitions in Russia and we have invested £504,618 in improving and marketing the property. Nonetheless our success has been limited. Part of the explanation is that there is a glut of product on the market. Our advisor estimates that 11,000 units in Alanya are up for sale and prospective buyers of holiday property are more limited than they were at the height of the boom.

Nonetheless we are not satisfied with relying on "market conditions" as a full explanation of our lack of success since at the right price any asset should be saleable. We have consequently decided to increase commissions and use external brokers. Following year end, we have asked our advisor to undertake a comprehensive analysis of the Alanya holiday market so we can increase sales. I hope that over the next year these steps will produce results.

Turkey has over the last several years been one of the world's fastest growing economies. Government debt is low. The banking system has been healthy since the banking crisis in 2001. The Turkish property market is healthy and there is liquidity. We are hopeful that these factors will assist us in monetizing assets and returning capital over the next year.

The Ottoman Fund Limited has invested in Turkish land and new build residential property in major cities and coastal destinations aimed at both the domestic and tourist markets.

The Company is a limited liability company domiciled in Jersey, Channel Islands.

The Company is quoted on the AIM market of the London Stock Exchange plc.

These consolidated financial statements have been approved by the Board on 4 February 2011.

Management/Advisory fee

2010

2009

£

£

Management fee

600,621

1,522,740

During the year DCM Capital Management (Jersey) Ltd were paid £314,938 (2009:£1,522,740) under the revised management agreement. Up until 31 December 2008 the manager had received a fee of 2% of committed capital. This agreement terminated on 22 February 2010 in line with the restructuring of the Group and the internalisation of the management of the Group.

Civitas Property Partners S.A. were appointed as Investment Advisors to the Group on 2 December 2009. The advisory fee structure is heavily incentive-based with an annual fixed component of €425,000 and an incentive component based on a percentage of realisation value. Civitas were paid £285,683 (2009:Nil) during the period.

Other operating expenses

2010

2009

£

£

Legal and professional fees

96,596

72,911

Advisory and consultancy fees

162,414

216,173

Marketing

578,445

93,840

Travel and subsistence

70,590

52,441

Directors' remuneration

138,385

127,486

Administration fees

122,099

108,414

Audit services

53,764

39,260

Depreciation

7,247

20,850

Amortisation

1,455

1,750

Other operating expenses

503,187

387,965

1,734,182

1,121,090

The Group has no employees.

Inventories

2010

2009

£

£

Opening book cost

92,494,972

91,503,254

Purchases at cost

321,495

991,718

Previously capitalised expenses written off

(342,134)

-

Closing book cost

92,474,333

92,494,972

This represents the purchase of 149,550 square metres of development land on the Bodrum peninsula, 931,739 square metres on the Riva coastline and 209,853 square metres, of which the Group has a 50% share, in the Kazikli village, in the district of Milas.

In accordance with the accounting policy, inventories are stated at the lower of cost and net realisable value. Inventories were valued at the year end by Savills on the basis of market value. On this basis, a total market value of £91.6 million (2009:£91.9 million) has been determined for inventories held by the Group at the balance sheet date. In accordance with the Group's accounting policy, unrealised gains or losses as a result of this valuation have not been recognised in the consolidated income statement.

Loans and receivables

2010

2009

£

£

Opening balance

9,014,112

8,573,984

New loans

-

-

Repayment of loan

(834,294

)

(277,199

)

Exchange (loss)/gain on revaluation of loans

(709,706

)

717,327

Closing balance

7,470,112

9,014,112

The third party loan made to the developer, Okyapı İnşaat ve Mühendislik ve Özel Eğitim Hizmetleri Sanayi ve Ticaret Limited Şirketi ("Okyapı"), in respect of the investment in the Riverside Resort in Alanya is for £7,470,112 (2009:£9,014,112) and is secured by a mortgage over the Alanya property. No interest is accruing and repayments are based upon sales of the development.

Enquiries:

Singer Capital Markets

James Maxwell 0203 205 7500

Company Secretary

Herald Fund Services Limited 01534 610 610

This information is provided by RNS

The company news service from the London Stock Exchange

END

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